Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are interested in an investment consisting of the following two stocks: (a) For the purposes of VaR calculation please choose the following parameters and

image text in transcribed

You are interested in an investment consisting of the following two stocks: (a) For the purposes of VaR calculation please choose the following parameters and document your choices ( 0 points): - confidence level (restrictions: the confidence level needs to be larger than 50% and smaller than 95\%; it must not have any further decimal places (Nachkommastellen)); - holding period in full calendar weeks (larger than zero); - correlation between the returns of both stocks (restriction: the correlation needs to be larger than 0.3 and smaller than 0.7). (b) You want to invest a total of 200,000 in both stocks. Decide how many percent of that investment you want to spend on each stock (restrictions: you need to spend the entire amount; each stock has to receive a minimum investment of 1\%). (0.5 points) (c) Please calculate the VaR of your investment. (8.5 points) (d) Depending on your parameter choices, your VaR may be larger than 200,000. Please briefly discuss the validity of such a result. How would you deal with such a result? (2 points) (e) Please go back to your correlation coefficient. Imagine that the covariance between both stocks was 0.00024. Is your choice for the correlation coefficient still appropriate? Provide both a non-numerical and a numerical argument. ( 2 points) You are interested in an investment consisting of the following two stocks: (a) For the purposes of VaR calculation please choose the following parameters and document your choices ( 0 points): - confidence level (restrictions: the confidence level needs to be larger than 50% and smaller than 95\%; it must not have any further decimal places (Nachkommastellen)); - holding period in full calendar weeks (larger than zero); - correlation between the returns of both stocks (restriction: the correlation needs to be larger than 0.3 and smaller than 0.7). (b) You want to invest a total of 200,000 in both stocks. Decide how many percent of that investment you want to spend on each stock (restrictions: you need to spend the entire amount; each stock has to receive a minimum investment of 1\%). (0.5 points) (c) Please calculate the VaR of your investment. (8.5 points) (d) Depending on your parameter choices, your VaR may be larger than 200,000. Please briefly discuss the validity of such a result. How would you deal with such a result? (2 points) (e) Please go back to your correlation coefficient. Imagine that the covariance between both stocks was 0.00024. Is your choice for the correlation coefficient still appropriate? Provide both a non-numerical and a numerical argument. ( 2 points)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Handbook Of Financing Growth

Authors: Kenneth H. Marks, Larry E. Robbins, Gonzalo Fernandez, John P. Funkhouser, D. L. Williams

2nd Edition

0470390158, 978-0470390153

More Books

Students also viewed these Finance questions

Question

Describe the five elements of the listening process.

Answered: 1 week ago